Bread Financial Holdings, Inc. (NYSE:BFH) will pay a dividend of $0.21 on the 14th of June. This means that the annual payment will be 2.3% of the current stock price, which is in line with the average for the industry.

View our latest analysis for Bread Financial Holdings

Bread Financial Holdings' Dividend Forecasted To Be Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable.

Having paid out dividends for 8 years, Bread Financial Holdings has a good history of paying out a part of its earnings to shareholders. Using data from its latest earnings report, Bread Financial Holdings' payout ratio sits at 10%, an extremely comfortable number that shows that it can pay its dividend.

Looking forward, earnings per share is forecast to fall by 2.1% over the next 3 years. However, as estimated by analysts, the future payout ratio could be 12% over the same time period, which we think the company can easily maintain.

Bread Financial Holdings' Dividend Has Lacked Consistency

Bread Financial Holdings has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of $2.08 in 2016 to the most recent total annual payment of $0.84. The dividend has fallen 60% over that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Bread Financial Holdings' earnings per share has shrunk at 14% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Bread Financial Holdings has been making. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Bread Financial Holdings has 2 warning signs (and 1 which can't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.